Nevada to Insurers: We Want to Know About Your Data Models

Nevada's insurance department has issued a bulletin that aims to rein in insurers' use of certain analytics models.

Bulletin 17-001 "remind[s] insurers that any mathematical model used in underwriting or rating of any personal line of property and/or casualty insurance, or other line of property and/or casualty insurance subject to regulation of rates ... [must] be filed with the Division for approval."

Specifically, the bulletin defines "any underwriting rule or model used in underwriting that affects the premium that any insured would pay" falls under this requirement. The clarification pulls under the regulatory umbrella practices that related to so-called "price optimization," a controversial practice that has been banned by 19 other states and targeted by the NAIC.

The NAIC issued a whitepaper with guidance on and a sample bulletin for price optimization in late 2015. However, Nevada's bulletin takes a wider stance, instead informing insurers overall that all data and analytics models uesd in their processes must be disclosed to the insurance department.

"The proliferation of complex predictive models that some insurers have termed 'underwriting models' has led to the necessity to reiterate such requirements," the bulletin says. "Nevada’s filing and prior-approval requirements continue to apply irrespective of the complexity of the algorithms utilized by insurers or the labels given to those algorithms."

Update Feb. 2, 2017:

The Property Casualty Insurers of America provided INN with a statement from VP Mark Sektnan:

“Price optimization is a more nuanced and complicated strategy than how some consumer groups have characterized it. Initially a few states issued bulletins with unclear or overly broad definitions of price optimization. However, the Nevada bulletin is similar to the vast majority of other states and simply restates long-standing statutes and precedents that the industry has followed. State insurance laws incorporate well understood standards and those standards should be applied to the practices of insurers as set forth in those laws as Nevada is doing."

The Consumer Federation of America (CFA) applauded the move:

“Most Americans are required by law to buy auto insurance and by their mortgage company to buy homeowners insurance, and it is terribly unfair and entirely illegal for insurance companies to vary premiums based on whether or not they are statistically likely to shop around,” said J. Robert Hunter, Director of Insurance for CFA and former Texas Insurance Commissioner, in a statement. “It is the obligation of Insurance Commissioners to protect consumers from price optimization and other forms of price gouging, and we applaud Commissioner Richardson for her action.”